Stanford case new black eye for Caribbean finance

MIAMI (Reuters) - The Allen Stanford fraud case is another black eye for the image of the Caribbean offshore finance sector, which must improve oversight and regulation to stay competitive in tough times, a regional trade expert said.

Stanford, a Texas billionaire and sports entrepreneur, was charged last week in a U.S. civil case with defrauding thousands of investors in an $8 billion scam involving certificates of deposit sold from his offshore bank in Antigua and Barbuda, where he is the biggest employer and investor.

The case sent shock waves rippling across the Caribbean, where Stanford had wide business interests and connections, and spooked investors from the United States to Latin America and Europe. Several states took control of his banks and firms.

With tourism, investment and remittances all tumbling in the Caribbean amid the global downturn, the region needed to "put its house in order" to maintain investor confidence, said David Jessop, executive director of the Caribbean Council, a U.K.-based organization that specializes in Caribbean trade policy.

"At a time when confidence is king ... people are going to be looking perhaps in other directions," Jessop told Reuters in an interview by phone late Monday.

The eastern Caribbean was already reeling from the Trinidad and Tobago government's abrupt bailout in January of several subsidiaries of the big financial conglomerate CL Financial Group, whose finance, energy, insurance, forestry, medical and retail activities stretched across the region and abroad.

The Trinidad central bank blamed CL Financial's troubles on high-risk investments and high leverage of its assets.

For years, the Caribbean, with its myriad of offshore banks and companies, has struggled to shake off an image as a hiding place for "dirty" funds secreted by international criminal mafias and drug traffickers and as a bolt-hole for fugitive financiers, such as Robert Vesco. Vesco died in Cuba in 2007.

Jessop said the most recent scares and the regulatory weaknesses they revealed put at risk the Caribbean's efforts to reform its reputation and build a new modern regional economy based on tourism and financial services.

"It's a real challenge for the Caribbean, because potentially you have the new Caribbean economy which is tourism, financial services, now under challenge, at the same time as the old economy which is traditional agriculture, sugar, bananas, rice etc. is also under threat," he said.

Jessop said governments, and regional groupings like the 15-nation Caribbean Community (Caricom), must act together to implement past promises to coordinate regulatory policies.

SCRAMBLED TAKEOVERS

"If the region wants to attract everything that goes with the financial services industry, it has to have the appropriate regulatory environment," he said.

"It has to happen at a national government level, and it has to happen at an all-Caricom level, but there has to be the political will to do that," Jessop added.

Four days before the U.S. Securities and Exchange Commission (SEC) announced the fraud charges against Stanford, Leroy King, the head of Antigua and Barbuda's financial services regulator, told Reuters he had "no credible information" of anything amiss in Stanford's local affiliates in the nation.

King said then his agency's last examination of Antigua-based Stanford International Bank raised no red flags.

Days later, Antigua and Barbuda's government, and the Eastern Caribbean Central Bank (ECCB), scrambled to take control of Stanford's local firms, including the onshore Bank of Antigua, where depositors had rushed to withdraw funds.

"This is a bank in crisis," the ECCB governor, Sir Dwight Venner, said on Monday as he and Finance Minister Errol Cort announced that control of the Bank of Antigua was being handed to a grouping of regional banks brought together in a new entity, the Eastern Caribbean Amalgamated Financial Co.

Venner said the banking shocks came amid declines in tourist arrivals and spending and in foreign investment and remittances that were already pummeling the region's small economies.

Jessop said the CL Financial and Stanford cases brought potential discredit on the region as whole.

"If you have one single large company that has various investments across the Caribbean and a lack of transparency as to how each of those investments and operations relate to one another, it's almost a recipe, if something goes wrong ... for disaster," he said.

He added that at a time when world leaders from the United States to Europe were calling for more scrutiny and regulation of offshore tax havens, Caribbean leaders needed to put aside narrow considerations of sovereignty and competition.

"We're about to enter a very new world, and it will be a fairly rough ride for a while, but eventually there will be a new global sort of matrix for this," Jessop said.

(Additional reporting by Billy Canning in St. John's, editing by Jim Loney and Jeffrey Benkoe)